Question

Which of the following income statement items is analyzed using the sales mix and the sales quantity variances?

Multiple Choice

• Gross margin.

• Operating expenses.

• Cost of goods sold.

• Contribution margin.

Answer 1

Sales mix variance is the difference between company's actual sales mix and budgeted sales mix. Sales mix have the impact on the total profit of the company as there is difference in the profit magin on every product of the company. The difference between number of units anticipated to be sold and the number of units actully sold is called sales quantity variance. These two variances directly affects the contribution margin of the company as the formula for these 2 is -

Sales mix variance = Standard contribution margin per unit × (Actual quantity sold – Quantity that would have been sold at the standard mix).

Sales quantity variance = Standard contribution margin per unit × (Quantity that would have been sold at the standard mix – Budgeted sales quantity).

Contribution Margin is correct option